Which statement best describes the effects of an increase in the price level?
A) Dollars are worth more, so people spend more.
B) Dollars are worth more, so people spend less.
C) Dollars are worth less, so people spend more.
D) Dollars are worth less, so people spend less.

Question

Quizplus · Accepted Answer

An increase in the price level means that the general price of goods and services in the economy has gone up. As a result, the purchasing power of each dollar decreases, meaning that dollars are worth less. This makes people more hesitant to spend money, since they can no longer buy as many goods and services with the same amount of money. Therefore, people spend less when the price level increases.

Which Statement Best Describes the Effects of an Increase in the Price